News

The implementation of the 4th Anti-Money Laundering Directive in Malta has brought with it the requirement to introduce a Register of Beneficial Owners as of 1stJanuary 2018. This brings with it new obligations for local companies, unless these are otherwise exempt for the following reasons:

Listed on a regulated market; and

All the registered shareholders of which are natural persons who are disclosed in the public records of the register of commercial partnerships maintained by the Registry of Companies.

A beneficial owner is defined as a shareholder or individual owning more than 25% of the company or exercising control. The main points set out by these new regulations are the following:

New companies being incorporated after the 1st of January 2018 are now obliged to provide a specific form indicating the details of the respective beneficial owners of the new company signed by two prospective directors (unless a sole director is proposed).

Existing companies incorporated before the 1st January 2018 undertaking a transfer of shares after 30 June 2018, shall use a specific form indicating the changes in beneficial owners of the company effected by such a share transfer.

Existing companies shall be obliged, after 30th June 2018, to inform the Registrar with the details of the beneficial owners of the company through a specific form. Such form shall be provided when the next anniversary of the company falls due after the end of June 2018, or when a share transfer is effected, whichever comes first.

All companies that fall under this regulation are obliged to hold an internal register of beneficial owners at the registered office or at a location as specified in the Memorandum & Articles of the company.

Strict and heavy fines are in force for those companies that do not comply with this regulation.

All officers, shareholders and beneficial owners of the company share equal responsibility and liability vis-à-vis imposed penalties.

Should you require further information or our assistance in this regard feel free to contact us on info@wahaat.com.

As penned in our previous news update, the Gaming Act’s new legislative framework (coming into force on the 1st of July 2018) includes various clarifications regarding the Malta Gaming Authority (MGA)’s strengthened supervisory role. Such improvements include the following:

Games and providers which are licensed by a competent authority outside the EU/EEA but are visible on the same website as MGA-licensed operations, shall not be permissible in view of regulatory risks that may arise. Synonymously, wallet setups with non-EU/EEA licensed games offered on the same/different domain or sub-domain name, shall follow suit. Ultimately, games supplied by holders of a critical gaming supply license issued by the MGA or an equivalent authority within EU/EEA are the only operations allowed as part of the MGA-licensed gaming service, subject to no prejudice other MGA requirements.

The MGA must be notified when the website of the MGA-licensed operation is used in connection with a foreign license – such a setup shall only be allowed where the MGA deems fit, having had regard to the regulatory objective.

In light of the above, the MGA shall prohibit MGA licensees from introducing new games not licensed in EU/EEA jurisdictions on websites connected with MGA-licensed gaming services. Adjustments may be made by the licensees until the 31st of December 2018.

Effective as from 1 June 2018, Legal Notice 162 of 2018 – Value Added Tax (Registration as a Single Taxable Person) Regulations, 2018 has introduced the concept of VAT grouping to Maltese VAT legislation applicable only to legal persons licenced or recognised by the Malta Financial Services Authority (MFSA) or the Malta Gaming Authority (MGA).

A VAT group may be formed between two or more legal persons which are established in Malta for VAT purposes subject to the satisfaction of the following criteria:

At least one of the applicants is a taxable person licenced by MFSA or MGA in terms of the Schedule to this regulation; and

Applicants must be bound by financial, economic and organisational links.

A VAT group is allocated a single VAT number and VAT numbers previously pertaining to the separate legal persons are cancelled. A VAT Group must nominate a Group Reporting Entity from within the group, which company will be responsible for VAT reporting and payment of VAT. All companies within the VAT Group are held jointly and severally liable for any amounts of VAT due and interest thereon by the Group.

Legal persons forming part of a VAT group are considered as a single taxable person and supplies amongst group members should be disregarded for VAT purposes. Furthermore, supplies made by any company within the group to a person outside the VAT Group will be deemed to be carried out by the Group Reporting Entity. A legal person forming part of a VAT Group is prohibited from joining another VAT Group and companies bound to each other by financial, organisational and economic links may only form part of the same VAT Group.

VAT grouping is not automatic and an application form should be filed online to form or join a VAT group. Together with the application form, evidence supporting the financial, economic and organisational links should also be filed. Furthermore, in order to join a VAT group, applicants must be compliant with both their income tax and VAT compliance obligations.

Apart from the administrative simplification, VAT grouping also offers other benefits in terms of having situations where one company within the group is awaiting a VAT refund and another company is in a VAT payable position. Nonetheless, due consideration must be taken when deciding on whether a group should opt for a VAT grouping position and also depending under which VAT registration type the group should be registered as this might have other consequences on input VAT deductibility. Our VAT team can assist you in your group’s VAT consideration and VAT grouping decisions.

The tax incentive provided by means of the highly qualified persons rules, originally issued in 2011 has now been extended by virtue of Legal Notice 141 of 2018 by adding selected employees in the Assisted Reproductive Technology Sector to the list of qualifying persons. As from the year of assessment 2018 highly qualified persons that occupy “eligible office” with the Office of the Chief Medical Officer to Government consisting in the following employment positions shall qualify for the special tax rate of 15% on their employment income.

The Maltese Government is moving forward with the proposed framework for the regulation of DLT. This week, the second reading of the three bills took place in Parliament, such are entitled as follows:

The Malta Digital Innovation bill; (eventually MDA) embodies the establishment of the Malta Digital Innovation Authority which shall focus on the supervision and certification of DLT platforms and smart contracts;

The Technology Arrangements and Service Providers (TAS) bill, shall focus on the setting-up of a registration and certification mechanism for technology arrangements which voluntarily decide to register themselves; and

the Virtual Financial Assets (VFA) bill, shall regulate the offering of virtual financial assets, including the implementation of a bespoke financial instruments test.

The proposed framework is intended to provide further security to investors, platform developers, and issuers alike vis-à-vis the token offering at hand. This will eliminate the uncertainty underpinning the current cryptocurrencies market, rendering Malta a secure and stable place for business.

As the official concessionaire appointed by the Government of Malta to promote the Malta Residence and Visa Programme in the Middle East, earlier this month Wahaat hosted an exclusive event at the Capital Club in Dubai.

The event attracted a number of industry leaders who were keen to understand more about the opportunities Malta has to offer to foreign investors. A European state forming part of the Schenghen area, eurozone and is a member of the Commonwealth, Malta has an excellent track record when compared to other countries in the region boasting one of the highest GDP growth (6.6%) in the EU.

During their presentations, keynote speakers Ayman Sejiny | Special Envoy to the Prime Minister of Malta and Roderick Cutajar | CEO of the Malta Residency and Visa Agency, gave a thorough overview of the benefits the European island has to offer to investors wishing to explore the possibility of obtaining a second residency or citizenship in Malta.

In this interview Mark Bamber | Advisory Services Partner gives an overview of the economic cycles Malta has gone through over the past decades and discusses how we can maximise on the current positive wave to explore new sectors to promote further growth.

How has Malta adjusted to global trends and demands to attract new sectors?

Malta has historically needed to re-invent itself as it moved towards higher value-added economic activities and placed itself on the international economy. Post-independence, Malta found its niche in textile manufacturing, progressed into launching itself as a tourist destination, and in the 1980s embarked on offshore financial services. In the 1990s, Malta moved the offshore regime onshore, laying the ground to our successful development of international financial services. More recently, igaming became Malta’s new success story, and was lauded for its exceptional performance in the IMF blog. In parallel to these main sectors, Malta also launched itself as a base for the generic pharma industry, aircraft maintenance, maritime and recently, for life sciences.

What causes the need for economic diversification?

Moving towards the launch of a new economic activity is dictated either by changes in global circumstances or by emerging opportunities. For example, as South-East Asia started to target international investment in the 1970s as a low-cost location, many textile manufacturing plants in Europe simply relocated there in search of cheaper labour costs. On the other hand, as the Bolar provision was introduced in Maltese legislation, pharma manufacturing perceived a competitive advantage in Malta and came to the island.

Why is diversification a vital part of economic growth?

Over the last few decades, Malta’s population, and subsequently its labour force, has grown. In itself, this factor calls for the need to create more job opportunities. Economic diversification into specialised sectors positions the country as one which offers a value-added service resulting in high-end jobs. Likewise, the creation of specialist positions in the financial services industry increases value-added high-end jobs to replace or complement lower level activities.

And why do we want to increase value-added employment?

Economists believe that as countries develop, it is important to move higher in value-added terms to raise the standard of living, and to meet increasing demands for environmental, social and related commitments. Such activities generally mean that both salaries and profits are boosted. Employees earning better salaries can afford more luxurious housing and afford to have a more extravagant lifestyle. Firms earning more profits can reinvest and distribute returns to their shareholders. It also results in an increase in tax revenue, which enables government to finance infrastructure, environmental projects, social programmes, and improved health and educational services, among other things.

Is the benefit limited to newly-emerging sectors?

No. The economy is a network of inter-linked and inter-related sectors and activities. For example, as the financial services sector and the igaming industry grew in Malta, the benefits were felt by more traditional sectors of the economy. The influx of foreign workers generated an additional demand for housing, prompting growth in the construction industries. It also created new demands in entertainment, catering, leisure activities, and related sectors. The increase in resident families reversed the trend of Malta’s previous ageing population, and brought a new cohort of children who filled out the shrinking classrooms of our schools. Despite the growth of internet shopping, the growth in population created a new demand in our retail sector, boosting volumes for the wholesale and retail trades and driving new investment in retail outlets.

Economists talk about direct, indirect and multiplier impacts. The direct impact of a new investment is the value-added, income and investment created by the business. Indirect impact is the economic benefit to the immediate suppliers of the business. The multiplier effect has a positive impact to the community at large – eg. A high-earing employee in a financial institution spends part of his/her income locally, thus putting that money directly back into the economy.

Is it time to reinvent ourselves?

I perceive newly developing triggers that offer opportunities for Malta to develop new segments of economic activity. Internationally, there is growing resistance to large corporations that utilise fiscal structures in order to optimise their affairs. Multinationals that used blatant fiscal structures to relocate profits were put under pressure in the British media, when it was claimed that leading global brands unfairly paid less tax than the ordinary man in the street. Several initiatives globally are pushing the concept that international investment should be justified by demonstrable substance in overseas operations.

Concurrently with these developments, boundaries between industries are blurring. Technology is taking up an increasingly important role in medicine, as it is doing in financial services. Cryptocurrencies came to the fore with extraordinary growth in 2017, albeit the first quarter of 2018 saw considerable scaling back and consolidation in this sector.

More interestingly, it is the technology underlying cryptocurrencies that could transform how the economy works. Simplistically, blockchain is a shared, trusted, public ledger that everyone can inspect, but which no single person can control.

What specifically, are the changes it can bring about?

It can have a transformative impact on financial services. For example, blockchain can be very significant in the way that banks transfer money internationally. At least nine banks, including Goldman Sachs, Royal Bank of Scotland, UBS, Credit Suisse, BBVA, and Barclays, are studying this adoption in their systems. Blockchain also offers more accurate tracking of customer repayment histories both internationally and across banks, thus reducing credit risk. For example, Everledger, a permanent ledger for diamond certification, sees the new opportunities as a mark of authenticity providing transparency for all parties involved, a clear attempt to prevent diamond fraud.

Blockchain itself is also the technological base underlying smart contracts. Smart contracts help you exchange money, property, shares, or any item of value in a transparent, conflict-free way while avoiding the services of a middleman. In banking, blockchain can unlock value by automating processes and reducing compliance risk. For example, a shared KYC ledger would enable the sharing of encrypted updates of client details to all banks in real time. Such a ledger would enable the identification of persons or organisations attempting to create fraudulent identities, such that criminal activity can be identified more easily and can be targeted directly.

Malta is a trail blazer in this segment, as it is one of the first countries to embrace the technology, study its opportunities, launch a strategy to benefit from it, and give confidence in a regulated environment. Concerted efforts to attract the Fintech operators (the companies focusing on the technology) and those using the technology to deliver financial services promise to bring a new wave of foreign investment into our economy, transform the way financial services operate, introduce new thinking and new practices into our banking environment, and create new jobs and income opportunities for our residents. With an industry comprising technology and services, we can have a sector that combines concept, substance, and profit centres. We should be thinking boldly in formulating our vision for tomorrow.

Mark is an experienced economist, with a long track record in management and consultancy leadership roles in Malta and overseas.

The below tax update highlights the main measures that were entered into force by means of ACT VII of 2018, enacting the measures announced in the 2018 Budget speech.

Changes to the definition of a ‘Participating Holding’

The definition of a participating holding has been amended to now include holdings which arises where a company holds directly at least 5% (previously 10%) of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least 5% (previously 10%) of any two of the right to the following:

Right to vote;

Profits available for distribution; and

Assets available for distribution on a winding up.

Prior to the changes to the definition of a participating holding, a partnership en commandite the capital of which is not divided into shares constituted under the Companies Act, not being a property partnership was also considered as a company. Following the recent amendments, this definition was also extended to a partnership or EEIG, not being a property partnership, and which has not elected to be treated as a company in terms of Article 27(6) of the Income Tax Management Act and any body of persons constituted, incorporated or registered outside Malta and of a nature similar to any partnership en collectif and en commandite where such body of persons has elected to be treated as a company in terms of Article 27(6) of the Income Tax Management Act and for as long as such election remains in force.

Changes to the remittances basis of taxation

As from basis year 2018, an individual who is a long-term resident, or who holds a permanent residence certificate or a permanent residence card will not be eligible to be subject to income tax in Malta under the remittance basis of taxation i.e. subject to tax in Malta on foreign source income remitted to Malta, with effect from the year in which long-term residence status or the right of permanent residence is granted and subsequent years. The terms “long-term resident”, “permanent residence certificate” and “permanent residence card” shall have the meaning assigned to them respectively in the Status of Long-Term Residents (Third Country Nationals) Regulations and the Free Movement of European Union Nationals and their Family Members Order.

Moreover, with effect from basis year 2018, persons who are ordinarily resident but not domiciled in Malta and subject to tax in Malta on the remittance basis of taxation and whose annual income arising outside Malta and not received in Malta is at least €35,000, shall be subject to a minimum annual tax of €5,000. If the resident but not domiciled individual can proof to the Commissioner that had he been subject to tax in Malta under the worldwide basis of taxation, the total tax payable by him would have amounted to less than the minimum tax, his tax liability shall be capped accordingly at the said lower amount.

The minimum annual tax liability of €5,000 includes any Maltese income tax paid, whether by way of withholding or otherwise but excludes any tax paid on transfers of immovable property situated in Malta. The minimum annual tax liability is also applicable to married couples who opt for a joint computation and whose annual income arising outside Malta which is not received in Malta, derived by both spouses is at least €35,000.

Changes effecting the transfer of immoveable property

Following the recent amendments through the Budget Measures Implementations Act, the term ‘Project’ for the applicability of the flat rate of tax of 5% shall not include land acquired by the owner and divided for transfer into more than one transferable portion, where the land is transferred by the owner in the same state as when acquired (i.e. no excavation or any other works whatsoever have been carried out on the property) and no permit has been issued by the Planning Authority during the period of ownership by the owner sanctioning the development of the land into more than one transferable unit.

Upon the sale of immoveable property, for the purposes of determining the date of acquisition of property which was acquired by the transferor by a donation, the date of acquisition of such property should be the date in which the property was originally acquired by the donor. This provision does not apply for the transfer of property that was acquired by the transferor in terms of a causa mortis that happened before 25th November 1992.

Similarly, the date of acquisition of property acquired by the transferor by virtue of the exemption in terms of Article 5A(4)(j) of the Income Tax Act upon the liquidation of a company, shall be the date when the property was acquired by the liquidated company.

A clarification has been issued with respect to the exemption from property transfers tax on transfers of own residence whereby it has been clarified that this exemption should apply only if the property transferred does not form part of a project consisting of a dwelling house.

The transfer of immoveable property from one company to another company forming part of the same group and where such companies are owned substantially the same is exempt from property transfers tax. Prior to the recent amendments to this exemption, in order for the exemption to apply, the property transferred must have been owned by the transferor for a period exceeding twelve years. This provision has now been removed and the exemption should apply as long as the transferor and transferee are owned substantially the same.

It has been clarified that upon a partition of property which was acquired from a transferor which qualified for the exemption in terms of the transfer of his own residence, the legislation imposes property transfers tax upon partition in relation to a deemed transfer of a portion of that property, equivalent to his undivided share in that property, at its market value.

Upon the transfer of immoveable property upon which a company claimed deductions for wear and tear, the company is required to prepare a balancing statement for such transfer.

Updates to the deduction in relation to intellectual property

The Income Tax Act provides for a deduction in relation to capital expenditure incurred for the acquisition of intellectual property spread equally over the useful life of the asset but in any case, over a minimum period of three years.

Following the amendments through the Budget Measures Implementation Act, the first year in which this deduction can be the year in which the said expenditure has been incurred or the year in which the intellectual property or intellectual property rights is first used or employed in producing the income with effect from year of assessment 2017.

Moreover, a new deduction was introduced in relation to the exploitation of intellectual property whereby such deduction is capped at a percentage amount of qualifying income derived from qualifying intellectual property.

Changes to the applicability of the 15% flat rate of tax on rental income

It has been clarified that the flat rate of tax of 15% on rental income shall be applicable also to ground rents, whether from an urban or rural tenement.

Applicability of married and parent rates of taxation

With effect from year of assessment 2019, unmarried individuals, widows or widowers, separated or divorced persons may opt to be taxed at the married rates if they maintain a child under 18 years (or 23 years if receiving full time education or serving an apprenticeship) who is not in receipt of an annual income which exceeds Eur3,400.

On the 8th of May 2018, the Maltese Parliament has approved the third and final reading of the Gaming Act (https://parlament.mt/media/93493/bill-31-gaming-bill.pdf). The Act shall broaden the regulatory scope, and increase the MGA’s oversight to allow, in a proportionate manner, intervention where necessary. The role of Key Official within a licensed entity shall be segmented into various key functions for direct scrutiny and targeted supervision controls. Additionally, the Act has formalised the role of the MGA’s Player Support Unit thus strengthening the player protection framework. New and effective processes for criminal and administrative justice are catered for in the new Act. Provisions relating to consumer protection standards, responsible gaming measures, reporting of suspicious sports betting transactions and innovation and development.

Binance, the Hong Kong-based exchange has announced concrete plans of setting up office in Malta.

Zhao Changpeng, CEO of Binance, was reported on Bloomberg to say that they are currently negotiating with banks in Malta to set up a formal banking relationships. This would allow Binance to add crypto-to-flat trading pairs to its current service line of cryto-to-crypto trading.

In April 2017, Malta rolled out an ambitious strategy for blockchain technology with the aim of becoming a ‘Silicon Valley’ for Europe and is in the process of setting up a Malta Digital Innovation Authority to certify blockchain companies and establish a legal framework for initial coin offerings (ICOs).